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Home Values Dropping? Well, Yeah. And Bankruptcy Cases in Arizona Continue.

By Joseph McDaniel, Esq.

Let's give this only a moment of thought.

In an ordinary year, the United States will see about 100,000 mortgage foreclosures and trustee's sales.

Last year, we saw more than a million, and this year we're on track for about 1.4 million.

That means we'll see a bunch of houses owned by banks, and a bunch of empty houses, and a bunch of people who can't buy a new house for a couple of years because they filed a bankruptcy.

So are prices of houses going to drop? Uh, yeah.

And how about new home sales?

Well, why would you buy a new home, assuming that you can buy a foreclosed-upon house for far less? Or pick up a short-sale for a lot less?

So this associated press article in Bloomberg is certainly accurate; we will see houses selling for less for a long time.

And remember: we haven't even seen the start of the commercial real estate disaster, which will show up as well.

What effect will that have on bankruptcy cases in Arizona, whether they're in Scottsdale, Phoenix, Mesa or Chandler?

Well, that will mean that the overwhelming majority of houses listed as homesteads in bankruptcy cases in Arizona will have no "excess equity" for the estate, and therefore will be of no interest to the Bankruptcy Trustee appointed in the Chapter 7 Case.

It also means that there will be few houses that need a special finesse: when house prices were rising like helium-filled balloons, smart bankruptcy lawyers in Arizona who represented a debtor with a house with nearly 150,000 dollars in equity would file to have the house abandoned from the bankruptcy estate. Or $125,000, if the federal homestead "cap" applied.

And that way, if the house went up in value, as houses did for an extended period all over Arizona, the increase in equity would belong to the debtor, not the bankruptcy estate.

Understand that filing to have a house abandoned from the estate is not a standard action for a debtor in a Chapter 7 Bankruptcy in Arizona. Normally, an abandonment pleading comes from a bankruptcy trustee, who wants to avoid being burdened with an asset that's worthless to the bankruptcy estate.

p.s. Oh, yeah. The Associated Press article I linked above points out that the stock of home-builder corporations has been dropping like a rock; to which I can only say, do you think?

 

Full post as published by Arizona Bankruptcy Attorney Blog on March 30, 2011 (boomark / email).